Choice Under Complete Uncertainty When Outcome Spaces Are State Dependent

Abstract

One central objection to the maximin payoff criterion is that it focuses on the state that yields the lowest payoffs regardless of how low these are. We allow different states to have different sets of possible outcomes and show that the original axioms of Milnor (1954) continue to characterize the maximin payoff criterion, provided that the sets of payoffs achievable across states overlap. If instead payoffs in some states are always lower than in all others then ignoring the bad states is no longer inconsistent with these axioms. Similar dependence on overlap of outcome spaces across states holds for the minimax regret and maximin joy criteria.